Offshore Production Improvements Will Yield Potential Gains Amid Risks

Key Takeaways

• Production growth from new and existing fields, plus acquisition integration, will drive higher revenues, margins, and greater operating efficiency.
  
• Strong financial footing, disciplined capital use, and favorable market dynamics support resilience and growth opportunities amid oil sector volatility.
  
• Overdependence on aging, maintenance-challenged offshore Brazilian assets and a redeployment-focused strategy heightens operational and regulatory risk amid global oil demand and energy transition headwinds.

Catalysts

Engages in the exploration, development, and production of oil and natural gas properties in Brazil and internationally.

• Ramp-up of production at the Wahoo field, supported by the recently obtained installation license and continuing progress on drilling/installation, will add significant new output in 2026–2027, increasing both revenues and operating leverage as production grows faster than fixed costs.
  
• The upcoming closing and integration of the Peregrino acquisition (majority stake), together with ongoing operational improvements and cost rationalization in this mature offshore asset, are set to materially lift Prio's consolidated EBITDA and free cash flow, supporting future earnings expansion.
  
• Sustained high operating efficiency across the portfolio (notably at Albacora Leste and post-remediation at Frade) and enhanced field redundancy reduce downtime risk, supporting more consistent production volumes and improved net margins.
  
• Robust balance sheet strength (over $1.5B cash post-Q2/25, debt refinanced with longer duration and lower cost), combined with prudent capital allocation and disciplined hedging practices, position Prio to withstand commodity price volatility and to capitalize on opportunistic acquisitions, which can drive longer-term revenue and earnings growth.
  
• Continued global demand for reliable oil exports-underpinned by emerging market energy needs, delayed energy transition in hard-to-abate sectors, and rising energy security concerns-creates a stable market backdrop, boosting confidence in Prio's medium-term revenue and cash flow outlook.

Prio Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Prio's revenue will grow by 22.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 73.9% today to 26.9% in 3 years time.
• Analysts expect earnings to reach R$7.1 billion (and earnings per share of R$10.05) by about August 2028, down from R$10.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, up from 3.1x today. This future PE is greater than the current PE for the BR Oil and Gas industry at 7.9x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.31%, as per the Simply Wall St company report.

Prio Future Earnings Per Share Growth

Risks

• Prio faces maturity and depletion risks across its existing offshore fields, as evidenced by recurring compressor and pump failures at Frade and TBMT and well interventions required at Peregrino; persistent maintenance issues and natural production decline could erode long-term output and revenue stability.
  
• The company's increased operational complexity, with ongoing multi-asset drilling, workover campaigns, and new field integrations (notably Peregrino and Wahoo), highlights the potential for structurally higher CapEx and lifting costs, threatening net margins and compressing free cash flow if cost savings do not materialize as expected.
  
• Prio remains highly concentrated in Brazilian offshore assets, exposing it to country-specific regulatory, political, and operational risks (such as licensing delays and local content rules), which could negatively impact earnings consistency and heighten share price volatility long term.
  
• The company's business model and growth strategy continue to focus on mature field redevelopment rather than greenfield exploration, potentially limiting future growth opportunities as the pool of attractive acquisition targets diminishes and intensifying the risk to future revenue streams and asset replenishment.
  
• Global oil demand uncertainties-including increasing EV adoption, stricter ESG and climate regulations, and improved energy transition initiatives-pose significant long-term threats; these secular trends could result in declining demand, reduced pricing power, and lower valuation multiples, ultimately impacting Prio's top-line growth and earnings potential.

Valuation

• The analysts have a consensus price target of R$58.208 for Prio based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$68.0, and the most bearish reporting a price target of just R$45.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$26.5 billion, earnings will come to R$7.1 billion, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 19.3%.
  
• Given the current share price of R$39.79, the analyst price target of R$58.21 is 31.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.